The “Great Divergence” Debate

By the 17th century, India and China each had around 25% of the global GDP. These two giants together controlled half the world economy, and were the most important trading partners. Cotton and silk textiles from India were in extremely high demand, so much that every European nation wished to establish trading posts in the textile centers of the subcontinent in order to later monopolize her markets – both internal and export. By the mid-20th century, India’s share of the world GDP had collapsed to just 2%, with China too somewhere in the vicinity. Europe and the USA had far outstripped the Asians through a sudden growth in their economies – the Industrial Revolution – and they dominated the world market utterly.

This dramatic transformation which took place during the 18th and 19th centuries was keenly studied by many contemporary economists. There are four main orthodox schools of thought derived from the four major economists – Adam Smith, Karl Marx, Max Weber and Thomas Malthus. All four of them are very Eurocentric and examine the issue in a very simplified way – Europe had developed certain social structures which Asia had not, and these social structures necessarily led to ‘development and progress’. For the Smithians, the free-market system was unique to Europe, without which the European economies would never have ‘developed’. For the Marxists, it was property-rights coupled with capitalism – both of which were again unique to Europe. For the Weberians, Europe possessed Protestant ethics which helped drive the European economy, while the Asian religions did not allow such liberty. For the Malthusians, Europe had a better population/resources ratio, which Asia lacked. The Europeans, thus, tried to analyze Asian societies through the lens of European terminology. The problem here is that the Asian society functions in a manner that is fundamentally different from the European one. Thus, if a European model is superimposed on the Asian societies in order to study them, it would necessarily lead to a distortion of facts in order to suit theory – something which most European theorists are quite adept at.

There are a few other large problems associated with these schools of thought, and their followers. They assume that the endpoint of every country’s economic, social and political development is the same, and that ‘Capitalism’ and ‘Industrialization’ are necessarily part of any society’s progress. But it is not so. Capitalism and the Industrial Revolution are purely European (and by extension American) phenomena because it was a product of the cultural, social, political and intellectual forces found in those lands – the rise of towns and increase in long-distance trade in turn increasing the wealth and influence of the burghers; the rise of banking due to removal in restrictions of freedom of commercial practices instituted by the Church leading to other commercial innovations such as the stock exchange and corporations; the abolition of serfdom in most parts of Europe freeing the peasants, causing them to migrate to towns in search of better jobs; the Reformation leading to the weakening of the Catholic Church and its totalitarian control of European life, thus paving the way for freedom of thought and the Renaissance (and later the Age of Enlightenment).

India, China, Japan, Korea and the Middle East did not face such situations. Their socio-political structures were completely different from those in Europe, and hence could obviously have not developed a Western-style economic system. In fact, these lands were in many respects more advanced than Europe. Had these societies been left to their own ways, they would have developed some other mode of production that would have been in accordance with their social structures. The fact that they all practice capitalism today is because of its imposition either overtly by the West, or indirectly through the world-wide influence of Western thought.

Luckily for me, although my history professor is a Marxist, he did not completely buy into the orthodox schools of thought; he made us read excerpts from Prasannan Parthasarathi’s “Why Europe Grew Rich and Asia Did Not”, and we even had a classroom discussion with the author when he visited IIT Madras. This man has torn apart all the rusty orthodox theories in his book, and he has fashioned a new one based on solid facts rather than abstract concepts. His proposal is not only a very novel one, but also one that is very logically convincing. He says that each society develops in response to the “pressures and needs” it faces, and the policy of the State in dealing with these pressures and needs. For example, when British cloth manufacturers faced competition from Indian cotton, the State intervened by slapping high tariffs and in some cases even banning Indian textiles entirely. Thus, under this protectionist atmosphere, British inventors developed machines which would produce more and more cloth at cheaper rates in order to eliminate Indian competition. India, on the other hand, did not face such pressures and needs. Its textiles were highly competitive in the world market till the late 18th century. Around this time, the British started to conquer large parts of the subcontinent and strangled the Indian manufacturers in order to eliminate the competition, thereby devastating both the land and its society.

Thus, we see that when history is led by ideology, it becomes useless, and even dangerous. Parthasarathi has opened up a new route in the study of the “Great Divergence”, and I hope this spirit continues to weed out inconsistencies in other orthodoxies of our age

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3 thoughts on “The “Great Divergence” Debate”

I agree with Prasannan Parthasarathi’s analysis about society namely “Society develops in response to the “pressures and needs” it faces, and the policy of the State in dealing with these pressures and needs.” Even in India, the government policies are always based on “protectionist atmosphere”, which is inherited from British rule.

There were no high tarriffs against Indian cotton. Indian cotton cloth was very lightweight and delicately manufactured by hand. It was in enormous demand in Europe. The East India Company made large profits selling Indian cotton in Europe. The story about cutting off the hands of cotton weavers was never true. It was French propaganda designed to provoke the Maratha Confederacy into fighting the Delhi Sultanate and thus the East India Company who were providing many outsourced government services (tax collection, defence) to the Sultan in return for generous rewards. The French occupied most of India except the Sultanate and the Confederacy.

British cotton was much heavier and coarser because of the roughness of the manufacturing process. It was, however, very cheap. This appealed to the Indian market. Britain operated a free trade policy. At a later time, this enabled the Japanese to build their cotton industry by selling Japanese cotton in India at a cheaper price than British, Indian factory made or Egyptian cotton. Protectionism was NOT inherited from British rule. Neither was the licence Raj. They could however have been inherited from British Socialism. Many leaders of the Congress Party were socialist in outlook and they were educated at the London School of Economics, which took arguments such as “infant industries” seriously. This damaged not only India but many other Commonwealth countries where their leaders took socialism seriously. Ghana and Kenya would be examples. Ghana was the richest country in Africa per person before independence but adopted protectionism. Kenya has recently reformed and become very capitalist. It is now growing fast but there is great inequailty.

I am not an historian; I just read about these things. Most comparison is done betweeen Europe and China. This page helps to keep India in the debate. Well done. Jared Dimond in Guns, Germs and Steel makes an enviromental argument that high temperatures in India make hard physical work very difficult so Europe and North East Asia had inherent advantages. If that is so, how come India matched China as an economy in say, 1650?